Wall Street Reorg: Impact on Real Estate?
After a weekend spent huddling together, Wall Street chieftains were unable (or, more precisely, unwilling) to come up with a plan to save faltering Lehman Brothers, which is now expected to file for bankruptcy. Merrill Lynch, which had seen its shares drop along with Lehman’s in recent days, agreed to be acquired by Bank of…
After a weekend spent huddling together, Wall Street chieftains were unable (or, more precisely, unwilling) to come up with a plan to save faltering Lehman Brothers, which is now expected to file for bankruptcy. Merrill Lynch, which had seen its shares drop along with Lehman’s in recent days, agreed to be acquired by Bank of America for close to $50 billion. Meanwhile, questions about giant insurer AIG’s ability to weather its own set of mortgage-related problems continued to mount. My goodness. I’ve been in the business 35 years, and these are the most extraordinary events I’ve ever seen, said Peter G. Peterson, co-founder of the private equity firm the Blackstone Group, who was head of Lehman in the 1970s and a secretary of commerce in the Nixon administration. The big question is whether these moves will increase investor unease or, by removing a few of the major question marks, hasten its recovery. The same can be said for the local real estate market. While many of Merrill’s remaining 60,000 employees will undoubtably be kept on, the same can’t be said for Lehman’s workforce of 25,000; on the other hand, market’s hate uncertainty, and maybe this just helps ensure that New York market is on target to meet Jim Cramer’s projected turnaround date of June 30, 2009.
Two Major Wall Street Banks Falter [NY Times]
Crisis on Wall Street [WSJ]
Photo by huachen
“Even if the value of your house declines, you’ll still have a roof over your head.” – Polemicist at September 15, 2008 12:22 PM
Renting, waiting and then bottom-feeding is a lot cheaper. Buying now without a significant chop off comps is pure luxury. I don’t think that’s a preference for most of us.
Dow–thanks for inserting the “real terms, inflation adjusted” into my question and making me sound more financially savvy than I am. Obviously I understand the concept of nominal versus inflation adjusted prices and there seems to be little doubting that the current bubble was an anomaly historically. However I do wonder what the Schiller chart would look like now, given that the one you posted is two years old. Anecdotally it feels to me that prices have decreased fairly significantly over the last year. Have you seen an updated chart?
PSSS—
Dave my PS stood for Prodigal Son, not Postscript. But your point does make sense as a PSS after mine. How’s your day going by the way?
“Dow—are you suggesting that house prices will never reach 2006 levels [real terms, inflation-adjusted] in our lifetimes?”
Yes, that is my expectation. You’ve seen this graph before ( http://tinyurl.com/g9vf4 ). Those that died before 2006 have never even seen those prices. This was the biggest boom ever (once in a lifetime as Alan Greenspan was recently rumored to have said) and there will be no “free lunch”.
Nominally, of course you’ll see them again. That’s what inflation does. It fools you into thinking that you took no loss in a RE trade (and that’s before you deduct interest, maintenance, fees, etc.). How many people brag about their property being worth 3 times what they’ve paid for it without taking these things into account? But as long as you FEEL like you’ve gained more than you REALLY have, or FEEL like you haven’t lost as much as you REALLY have, then it doesn’t REALLY matter to you. Instead, you’ll just by mystified about why so much of your RE “gain” has to go towards the higher costs of everything else. The time-value of money is very deceptive.
But before nominal 2006 prices return, I think there will be significant nominal losses.
PSS…no one knows. I don’t mean that to sound dire and catastrophic. Buying a home is a different set of economic and lifestyle decisions than buying an investment property. Its not only the numbers. But once the numbers make sense (after-tax) from a rent/own decision then its time to pull the trigger.
PS—Ultimately, no matter how much everybody wants to sound prescient and smarter than everybody else about the economy, there is never going to be one single time that is the right time to buy. You have to know what you want, what you can afford and do your best to make a good decision based on those factors. Listening to everyone else pontificate about the economy, while useful to an extent, can drive you crazy.
Lechecal, 12:15
Why so snide? I’ve never been uncivil with you…
Thanks to those that actually answered my question. Yes I know that TODAY or even next month are not the times to buy. And yes, OF COURSE I know that prices will continue to drop. I’m more trying to figure what the general horizon might look like (1-3 years) and what the bottoming out scenario might be.
“If this is the worst of it, I’d say we all got very lucky. What am I missing?”
Whatever the insiders are not. Hidden losses.
“Will rate drops make financing/refinancing more attractive, or will credit tighten up so much that low rates will be irrelevant as a practical matter?”
I’d say the latter at best. At worst…(you don’t want to know and I couldn’t tell you if you did).